Short Term Capital Loss Available

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
happysteward
Posts: 389
Joined: Tue Jun 16, 2015 11:42 am
Location: Eastern PA

Short Term Capital Loss Available

Post by happysteward »

Hi Boglehead friends,

I have a short term capital loss on a lot of VBTLX (Vanguard Total Bond Market Index Admiral) which will become long term in a few weeks.

I would like to Tax Loss Harvest this by swapping into VBILX (Vanguard Intermediate Term Bond Index Admiral).

Is there an advantage/disadvantage to waiting for this loss to become long term?
"How much money is enough?", John Rockefeller responded, "...just a little bit more."
jebmke
Posts: 16506
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Short Term Capital Loss Available

Post by jebmke »

no, no advantage
When you discover that you are riding a dead horse, the best strategy is to dismount.
PuckMan93
Posts: 11
Joined: Fri May 22, 2009 12:27 pm

Re: Short Term Capital Loss Available

Post by PuckMan93 »

From a tax perspective, a short-term loss is preferred because they first offset short-term capital gains before long-term capital gains. May work out to no benefit depending on your situation, but in general they are better.
User avatar
Topic Author
happysteward
Posts: 389
Joined: Tue Jun 16, 2015 11:42 am
Location: Eastern PA

Re: Short Term Capital Loss Available

Post by happysteward »

Will a long term capital loss offset a short term capital gain?
"How much money is enough?", John Rockefeller responded, "...just a little bit more."
sycamore
Posts: 4405
Joined: Tue May 08, 2018 12:06 pm

Re: Short Term Capital Loss Available

Post by sycamore »

happysteward wrote: Tue May 18, 2021 4:04 pm Will a long term capital loss offset a short term capital gain?
Yes but the best way to find out is to fill in your tax forms. Basically there are IRS rules on how to net losses against gains based on their holding period, and then if you have any amounts left over you net them out again.

Here's are some articles that may help
https://obliviousinvestor.com/capital-g ... long-term/
https://www.investopedia.com/articles/i ... nd-tax.asp
livesoft
Posts: 80590
Joined: Thu Mar 01, 2007 8:00 pm

Re: Short Term Capital Loss Available

Post by livesoft »

There is a disadvantage to wait. You might have ST gains and LT gains and if the loss was ST, then you would offset realized ST gains first. But if the loss was LT, then you would offset LT gains first. You want to opportunity to offset ST gains first since they are taxed at a higher rate. You may say, "But I do not intend to have any ST gains." In reality, having a stable of ST losses from which to offset ST gains means that decisions on whether to sell for ST gains vs LT gains are not made murky by the tax consequences which could lead to a behavioral mistake.
Wiki This signature message sponsored by sscritic: Learn to fish.
SpideyIndexer
Posts: 679
Joined: Thu Apr 02, 2015 10:13 pm

Re: Short Term Capital Loss Available

Post by SpideyIndexer »

Where in the prospectus does it explicitly state that interest (or tax-exempt dividends) is accrued daily? I can't seem to find it.
sycamore
Posts: 4405
Joined: Tue May 08, 2018 12:06 pm

Re: Short Term Capital Loss Available

Post by sycamore »

SpideyIndexer wrote: Tue Jun 21, 2022 1:35 pm Where in the prospectus does it explicitly state that interest (or tax-exempt dividends) is accrued daily? I can't seem to find it.
I posted some instructions for searching the prospectus for that. See viewtopic.php?p=6412380#p6412380
Statistical
Posts: 295
Joined: Tue Jul 06, 2021 1:08 pm

Re: Short Term Capital Loss Available

Post by Statistical »

happysteward wrote: Tue May 18, 2021 4:04 pm Will a long term capital loss offset a short term capital gain?

Yes but it will offset long term gains first. Short term losses offset short term gains first. Since short term gains are taxed higher a long term loss will never be better at best it is equal.

Example:
$10k long term gains
$10k short term gains

Scenario A: tax loss of $15k short term loss
Net result:
$5k long term gains
$0 in short term gains

Scenario B: tax loss of $15k long term loss
Net result:
$0 long term gains
$5k in short term gains

In both scenarios your $15k loss netting your $20k in gains down to $5k. However since LTCG are taxed lower (and for some users at zero) Scenario A results in more tax savings.

I am not saying you CAN'T TLH a long term loss but it can never be better than a short term loss and there is certainly no reason to ever wait for it to become a long term loss before harvesting it.

Capital Losses are always applied in this order
1) like to like (long against long, short again short)
2) any remaining capital gains for the year
3) up to $3k against regular income
4) roll the rest forward till next year
User avatar
Topic Author
happysteward
Posts: 389
Joined: Tue Jun 16, 2015 11:42 am
Location: Eastern PA

Re: Short Term Capital Loss Available

Post by happysteward »

Statistical wrote: Tue Jun 21, 2022 6:00 pm
happysteward wrote: Tue May 18, 2021 4:04 pm Will a long term capital loss offset a short term capital gain?

Yes but it will offset long term gains first. Short term losses offset short term gains first. Since short term gains are taxed higher a long term loss will never be better at best it is equal.

Example:
$10k long term gains
$10k short term gains

Scenario A: tax loss of $15k short term loss
Net result:
$5k long term gains
$0 in short term gains

Scenario B: tax loss of $15k long term loss
Net result:
$0 long term gains
$5k in short term gains

In both scenarios your $15k loss netting your $20k in gains down to $5k. However since LTCG are taxed lower (and for some users at zero) Scenario A results in more tax savings.

I am not saying you CAN'T TLH a long term loss but it can never be better than a short term loss and there is certainly no reason to ever wait for it to become a long term loss before harvesting it.

Capital Losses are always applied in this order
1) like to like (long against long, short again short)
2) any remaining capital gains for the year
3) up to $3k against regular income
4) roll the rest forward till next year
Thanks statistical!
"How much money is enough?", John Rockefeller responded, "...just a little bit more."
Post Reply